Notes to Condensed Consolidated Financial Statements
Summary of Business Segment Data
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
Six months ended June 30
|
|
Three months ended June 30
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Revenues:
|
|
|
|
|
|
|
|
Commercial Airplanes
|
|
$27,041
|
|
|
|
$24,314
|
|
|
|
$14,304
|
|
|
|
$13,624
|
|
Defense, Space & Security:
|
|
|
|
|
|
|
|
Boeing Military Aircraft
|
6,981
|
|
|
7,621
|
|
|
3,523
|
|
|
3,641
|
|
Network & Space Systems
|
3,796
|
|
|
4,009
|
|
|
1,920
|
|
|
2,049
|
|
Global Services & Support
|
4,603
|
|
|
4,666
|
|
|
2,304
|
|
|
2,496
|
|
Total Defense, Space & Security
|
15,380
|
|
|
16,296
|
|
|
7,747
|
|
|
8,186
|
|
Boeing Capital
|
172
|
|
|
209
|
|
|
90
|
|
|
104
|
|
Other segment
|
42
|
|
|
54
|
|
|
22
|
|
|
27
|
|
Unallocated items and eliminations
|
(125
|
)
|
|
(165
|
)
|
|
(118
|
)
|
|
(126
|
)
|
Total revenues
|
|
$42,510
|
|
|
|
$40,708
|
|
|
|
$22,045
|
|
|
|
$21,815
|
|
Earnings from operations:
|
|
|
|
|
|
|
|
Commercial Airplanes
|
|
$3,052
|
|
|
|
$2,672
|
|
|
|
$1,550
|
|
|
|
$1,453
|
|
Defense, Space & Security:
|
|
|
|
|
|
|
|
Boeing Military Aircraft
|
497
|
|
|
813
|
|
|
165
|
|
|
386
|
|
Network & Space Systems
|
318
|
|
|
293
|
|
|
150
|
|
|
137
|
|
Global Services & Support
|
545
|
|
|
502
|
|
|
267
|
|
|
253
|
|
Total Defense, Space & Security
|
1,360
|
|
|
1,608
|
|
|
582
|
|
|
776
|
|
Boeing Capital
|
77
|
|
|
63
|
|
|
33
|
|
|
19
|
|
Other segment
|
(110
|
)
|
|
(101
|
)
|
|
(48
|
)
|
|
(43
|
)
|
Unallocated items and eliminations
|
(1,050
|
)
|
|
(998
|
)
|
|
(330
|
)
|
|
(489
|
)
|
Earnings from operations
|
3,329
|
|
|
3,244
|
|
|
1,787
|
|
|
1,716
|
|
Other income, net
|
20
|
|
|
22
|
|
|
11
|
|
|
13
|
|
Interest and debt expense
|
(173
|
)
|
|
(195
|
)
|
|
(81
|
)
|
|
(96
|
)
|
Earnings before income taxes
|
3,176
|
|
|
3,071
|
|
|
1,717
|
|
|
1,633
|
|
Income tax expense
|
(558
|
)
|
|
(878
|
)
|
|
(64
|
)
|
|
(546
|
)
|
Net earnings from continuing operations
|
2,618
|
|
|
2,193
|
|
|
1,653
|
|
|
1,087
|
|
Net gain on disposal of discontinued operations, net of taxes of $0, $0, $0 and $0
|
|
|
|
1
|
|
|
|
|
|
1
|
|
Net earnings
|
|
$2,618
|
|
|
|
$2,194
|
|
|
|
$1,653
|
|
|
|
$1,088
|
|
This information is an integral part of the Notes to the Condensed Consolidated Financial Statements. See Note
17
for further segment results.
The Boeing Company and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
(Unaudited)
Note
1
– Basis of Presentation
The condensed consolidated interim financial statements included in this report have been prepared by management of The Boeing Company (herein referred to as “Boeing”, the “Company”, “we”, “us”, or “our”). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation are reflected in the interim financial statements. The results of operations for the period ended
June 30, 2014
are not necessarily indicative of the operating results for the full year. The interim financial statements should be read in conjunction with the audited Consolidated Financial Statements, including the notes thereto, included in our
2013
Annual Report on Form 10-K. Effective during the first quarter of 2014, certain programs previously reported in the
Boeing Military Aircraft
(
BMA
) segment were realigned to the
Global Services & Support
(
GS&S
) segment. See Note
17
. Business segment data for 2013 have been adjusted to reflect the realignment.
Standards Issued and Not Yet Implemented
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. The new standard is effective for reporting periods beginning after December 15, 2016 and early adoption is not permitted. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. For Boeing the new standard will be effective January 1, 2017 and the Company is currently evaluating the impacts of adoption and the implementation approach to be used.
Use of Estimates
Management makes assumptions and estimates to prepare financial statements in conformity with accounting principles generally accepted in the United States of America. Those assumptions and estimates directly affect the amounts reported in the Condensed Consolidated Financial Statements. Significant estimates for which changes in the near term are considered reasonably possible and that may have a material impact on the financial statements are disclosed in these Notes to the Condensed Consolidated Financial Statements.
Contract accounting is used for development and production activities predominantly by
Defense, Space & Security
(
BDS
). Contract accounting involves a judgmental process of estimating total sales and costs for each contract resulting in the development of estimated cost of sales percentages. Changes in estimated revenues, cost of sales and the related effect on operating income are recognized using a cumulative catch-up adjustment which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a contract’s percent complete. For the three months ended June 30, 2014, higher estimated costs to complete the KC-46A Tanker contract for the U.S. Air Force resulted in a reach-forward loss of
$425
of which the Commercial Airplanes segment recorded
$238
and the
BMA
segment recorded
$187
. For the
six and three months ended June 30, 2014
, net unfavorable cumulative catch-up adjustments, including reach-forward losses, across all contracts decreased Earnings from operations by
$145
and
$312
and diluted earnings per share by
$0.16
and
$0.41
. For the six and
three months ended June 30, 2013
net favorable cumulative catch-up adjustments, including reach-forward losses, across all contracts increased Earnings by
$164
and
$59
and diluted earnings per share by
$0.15
and
$0.04
.
Note
2
– Earnings Per Share
Basic and diluted earnings per share are computed using the two-class method, which is an earnings allocation method that determines earnings per share for common shares and participating securities. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. Participating securities and common shares have equal rights to undistributed earnings.
Basic earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the basic weighted average common shares outstanding.
Diluted earnings per share is calculated by taking net earnings, less earnings available to participating securities, divided by the diluted weighted average common shares outstanding.
The elements used in the computation of basic and diluted earnings per share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions - except per share amounts)
|
Six months ended June 30
|
|
Three months ended June 30
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net earnings
|
|
$2,618
|
|
|
|
$2,194
|
|
|
|
$1,653
|
|
|
|
$1,088
|
|
Less: earnings available to participating securities
|
3
|
|
|
4
|
|
|
1
|
|
|
1
|
|
Net earnings available to common shareholders
|
|
$2,615
|
|
|
|
$2,190
|
|
|
|
$1,652
|
|
|
|
$1,087
|
|
Basic
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
738.3
|
|
|
763.2
|
|
|
731.1
|
|
|
763.3
|
|
Less: participating securities
|
1.3
|
|
|
2.0
|
|
|
1.3
|
|
|
1.9
|
|
Basic weighted average common shares outstanding
|
737.0
|
|
|
761.2
|
|
|
729.8
|
|
|
761.4
|
|
Diluted
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
738.3
|
|
|
763.2
|
|
|
731.1
|
|
|
763.3
|
|
Dilutive potential common shares
(1)
|
9.1
|
|
|
6.9
|
|
|
9.0
|
|
|
8.5
|
|
Diluted weighted average shares outstanding
|
747.4
|
|
|
770.1
|
|
|
740.1
|
|
|
771.8
|
|
Less: participating securities
|
1.3
|
|
|
2.0
|
|
|
1.3
|
|
|
1.9
|
|
Diluted weighted average common shares outstanding
|
746.1
|
|
|
768.1
|
|
|
738.8
|
|
|
769.9
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
Basic
|
|
$3.55
|
|
|
|
$2.88
|
|
|
|
$2.26
|
|
|
|
$1.43
|
|
Diluted
|
3.50
|
|
|
2.85
|
|
|
2.24
|
|
|
1.41
|
|
|
|
(1)
|
Diluted
EPS
includes any dilutive impact of stock options, restricted stock units, performance-based restricted stock units and performance awards.
|
The following table includes the number of shares that may be dilutive potential common shares in the future. These shares were not included in the computation of diluted earnings per share because the effect was either antidilutive or the performance condition was not met.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in millions)
|
Six months ended June 30
|
|
Three months ended June 30
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Stock options
|
|
|
|
9.6
|
|
|
|
|
|
|
|
Performance awards
|
5.6
|
|
|
5.2
|
|
|
5.1
|
|
|
4.5
|
|
Performance-based restricted stock units
|
1.3
|
|
|
|
|
|
1.3
|
|
|
|
|
Note
3
– Income Taxes
Our effective i
ncome tax rates were
17.6%
and
3.7%
for the
six and three months ended June 30, 2014
and
28.6%
and
33.4%
for the same periods in the prior year. The effective tax rates for the
six and three months ended June 30, 2014
are lower than the comparable prior year periods primarily due to an incremental tax benefit of
$265
recorded in the second quarter of 2014 that related to the application of a 2012 Federal Court of Claims decision which held that the tax basis in certain assets could be increased and realized upon the assets' disposition. In addition, during the second quarter of 2014, tax benefits of
$116
and
$143
were recorded as a result of the 2007-2008 and 2009-2010 federal tax audit settlements. These benefits are partially offset by the absence of the U.S. research and development tax credit (research tax credit). The research tax credit was effective for 2013, but due to the expiration at the end of 2013, no tax benefit is recorded in 2014. Furthermore, in the first quarter of 2013, Congress retroactively reinstated the research tax credit for 2012, which reduced income tax expense by
$145
. If Congress extends the research tax credit for 2014, there will be a favorable impact on our effective income tax rate.
The total amount of unrecognized tax benefits increased from
$1,141
as of
December 31, 2013
to
$1,420
as of
June 30, 2014
primarily due to the tax basis adjustment, partially offset by the settlement of the 2007-2008 and 2009-2010 federal tax audits.
Federal income tax audits have been settled for all years prior to 2011. The
Internal Revenue Service
(
IRS
) will begin the 2011-2012 federal tax audit in the third quarter of 2014. We are also subject to examination in major state and international jurisdictions for the 2001-2013 tax years. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.
Note
4
– Accounts Receivable, net
Accounts receivable, net as of
June 30, 2014
, includes
$112
of unbillable receivables on a long-term contract with
LightSquared, LLC
(
LightSquared
) related to the construction of
two
commercial satellites. One of the satellites has been delivered, and the other is substantially complete but remains in Boeing’s possession. On May 14, 2012,
LightSquared
filed for Chapter 11 bankruptcy protection. We believe that our rights in the second satellite and related ground-segment assets are sufficient to protect the value of our receivables in the event
LightSquared
fails to make payments as contractually required or rejects its contract with us.
Given the uncertainties inherent in bankruptcy proceedings, it is reasonably possible that we could incur losses related to these receivables in connection with the
LightSquared
bankruptcy.
Note
5
– Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30
2014
|
|
|
December 31
2013
|
|
Long-term contracts in progress
|
|
$13,250
|
|
|
|
$12,608
|
|
Commercial aircraft programs
|
54,256
|
|
|
48,065
|
|
Commercial spare parts, used aircraft, general stock materials and other
|
7,295
|
|
|
7,793
|
|
Inventory before advances and progress billings
|
74,801
|
|
|
68,466
|
|
Less advances and progress billings
|
(28,550
|
)
|
|
(25,554
|
)
|
Total
|
|
$46,251
|
|
|
|
$42,912
|
|
Long-Term Contracts in Progress
Long-term contracts in progress includes Delta launch program inventory that is being sold at cost to
United Launch Alliance
(
ULA
) under an inventory supply agreement that terminates on March 31, 2021. At
June 30, 2014
, the inventory balance was
$322
(net of advances of
$307
) and
$425
(net of advances of
$331
) at
December 31, 2013
. At
June 30, 2014
,
$333
of this inventory related to unsold launches. See Note
10
.
Capitalized precontract costs of
$1,074
and
$520
at
June 30, 2014
and
December 31, 2013
, are included in inventories.
Commercial Aircraft Programs
At
June 30, 2014
and
December 31, 2013
, commercial aircraft programs inventory included the following amounts related to the 787 program:
$31,880
and
$27,576
of work in process (including deferred production costs of
$24,242
and
$21,620
),
$2,320
and
$2,189
of supplier advances, and
$3,442
and
$3,377
of unamortized tooling and other non-recurring costs. At
June 30, 2014
,
$18,367
of 787 deferred production costs, unamortized tooling and other non-recurring costs are expected to be recovered from units included in the program accounting quantity that have firm orders and
$9,317
is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
At
June 30, 2014
and
December 31, 2013
, commercial aircraft programs inventory included the following amounts related to the 747 program:
$1,756
and
$1,554
of deferred production costs, net of previously recorded reach-forward losses, and
$550
and
$563
of unamortized tooling costs. At
June 30, 2014
,
$1,221
of 747 deferred production costs and unamortized tooling are expected to be recovered from units included in the program accounting quantity that have firm orders and
$1,085
is expected to be recovered from units included in the program accounting quantity that represent expected future orders.
Commercial aircraft programs inventory included amounts credited in cash or other consideration (early issue sales consideration) to airline customers totaling
$3,269
and
$3,465
at
June 30, 2014
and
December 31, 2013
.
Note
6
– Customer Financing
Customer financing primarily relates to the
Boeing Capital
(
BCC
) segment and consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30
2014
|
|
|
December 31
2013
|
|
Financing receivables:
|
|
|
|
Investment in sales-type/finance leases
|
|
$1,593
|
|
|
|
$1,699
|
|
Notes
|
449
|
|
|
587
|
|
Operating lease equipment, at cost, less accumulated depreciation of $584 and $564
|
1,398
|
|
|
1,734
|
|
Gross customer financing
|
3,440
|
|
|
4,020
|
|
Less allowance for losses on receivables
|
(23
|
)
|
|
(49
|
)
|
Total
|
|
$3,417
|
|
|
|
$3,971
|
|
We determine a receivable is impaired when, based on current information and events, it is probable that we will be unable to collect amounts due according to the original contractual terms. At
June 30, 2014
and
December 31, 2013
, we individually evaluated for impairment customer financing receivables of
$91
and
$95
and determined that none of these were impaired.
The adequacy of the allowance for losses is assessed quarterly. Three primary factors influencing the level of our allowance for losses on customer financing receivables are customer credit ratings, default rates and collateral values. We assign internal credit ratings for all customers and determine the creditworthiness of each customer based upon publicly available information and information obtained directly from our customers. Our rating categories are comparable to those used by the major credit rating agencies.
Our financing receivable balances by internal credit rating category are shown below.
|
|
|
|
|
|
|
|
|
Rating categories
|
June 30
2014
|
|
|
December 31
2013
|
|
BBB
|
|
$1,046
|
|
|
|
$1,091
|
|
BB
|
50
|
|
|
58
|
|
B
|
680
|
|
|
585
|
|
CCC
|
175
|
|
|
457
|
|
Other
|
91
|
|
|
95
|
|
Total carrying value of financing receivables
|
|
$2,042
|
|
|
|
$2,286
|
|
At
June 30, 2014
, our allowance related to receivables with ratings of B and BBB to which we applied default rates that averaged
17%
and
2%
to the exposure associated with those receivables.
Customer Financing Exposure
Customer financing is collateralized by security in the related asset. The value of the collateral is closely tied to commercial airline performance and overall market conditions and may be subject to reduced valuation with market decline. Declines in collateral values are also a significant driver of our allowance for losses. Generally, out-of-production aircraft have experienced greater collateral value declines than in-production aircraft. Our customer financing portfolio is primarily collateralized by out-of-production aircraft. The majority of customer financing carrying values are concentrated in the following aircraft models:
|
|
|
|
|
|
|
|
|
|
June 30
2014
|
|
|
December 31
2013
|
|
717 Aircraft ($433 and $444 accounted for as operating leases)
(1)
|
|
$1,619
|
|
|
|
$1,674
|
|
757 Aircraft ($389 and $402 accounted for as operating leases)
(1)
|
424
|
|
|
453
|
|
MD-80 Aircraft (Accounted for as sales-type finance leases)
(1)
|
367
|
|
|
411
|
|
MD-11 Aircraft (Accounted for as operating leases)
(1)
|
206
|
|
|
220
|
|
737 Aircraft ($131 and $138 accounted for as operating leases)
|
198
|
|
|
210
|
|
767 Aircraft ($53 and $60 accounted for as operating leases)
|
183
|
|
|
207
|
|
747 Aircraft ($172 and $183 accounted for as operating leases)
(1)
|
172
|
|
|
286
|
|
787 Aircraft (Accounted for as operating leases)
|
|
|
273
|
|
|
|
(1)
|
Out-of-production aircraft
|
Note
7
– Investments
Our investments, which are recorded in Short-term and other investments or Investments, consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30
2014
|
|
|
December 31
2013
|
|
Time deposits
|
3,721
|
|
|
|
$6,090
|
|
Pledged money market funds
(1)
|
46
|
|
|
46
|
|
Available-for-sale investments
|
12
|
|
|
8
|
|
Equity method investments
(2)
|
1,151
|
|
|
1,164
|
|
Restricted cash
(3)
|
30
|
|
|
33
|
|
Other investments
|
33
|
|
|
33
|
|
Total
|
|
$4,993
|
|
|
|
$7,374
|
|
|
|
(1)
|
Reflects amounts pledged in lieu of letters of credit as collateral in support of our workers’ compensation programs. These funds can become available within 30 days notice upon issuance of letters of credit.
|
|
|
(2)
|
Dividends received were
$134
and
$75
for the
six and three months ended June 30, 2014
and
$103
and
$53
during the same periods in the prior year.
|
|
|
(3)
|
Restricted to pay certain claims related to workers' compensation and life insurance premiums for certain employees.
|
Note
8
– Other Assets
Sea Launch
At
June 30, 2014
and
December 31, 2013
, Other assets included
$356
of receivables related to our former investment in the Sea Launch venture which became payable by certain Sea Launch partners following Sea Launch’s bankruptcy filing in June 2009. The
$356
includes
$147
related to a payment made by us under a bank guarantee on behalf of Sea Launch and
$209
related to loans (partner loans) we made to Sea Launch. The net amounts owed to Boeing by each of the partners are as follows: S.P. Koroley Rocket and Space Corporation Energia of Russia –
$223
, PO Yuzhnoye Mashinostroitelny Zavod of Ukraine –
$89
and KB Yuzhnoye of Ukraine –
$44
.
Although each partner is contractually obligated to reimburse us for its share of the bank guarantee, the Russian and Ukrainian partners have raised defenses to enforcement and contested our claims. On October 19, 2009, we filed a Notice of Arbitration with the Stockholm Chamber of Commerce seeking reimbursement from the o
ther Sea Launch partners of the
$147
bank guarantee payment. On October 7, 2010, the arbitrator ruled that the Stockholm Chamber of Commerce lacked jurisdiction to hear the matter but did not resolve the merits of our claim. We filed a notice appealing the arbitrator’s ruling on January 11, 2011
.
On April 11, 2014, the appellate court entered a ruling that the decision of the arbitrator is not appealable. On May 9, 2014, we filed a brief with the Supreme Court of Sweden appealing the appellate court's April 11, 2014 ruling. On February 1, 2013, we filed an action in the United States District Court for the Central District of California seeking reimbursement from the other Sea Launch partners of the
$147
bank guarantee payment and the
$209
partner loan obligations. A trial in the United State
s District Court for the Central District of California is scheduled to commence January 26, 2015. We believe the partners have the financial wherewithal to pay and intend to pursue vigorously all of our rights and remedies. In the event we are unable to secure reimbursement of
$147
related to our payment under the bank guarantee and
$209
related to partner loans made to Sea Launch, we could incur additional pre-tax charges of up to
$356
. Our current assessment as to the collectability of these receivables takes into account the recent political unrest involving Russia and Ukraine, although we will continue to monitor the situation.
Note
9
– Commitments and Contingencies
Environmental
The following table summarizes environmental remediation activity during the
six months ended June 30, 2014
and
2013
.
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
Beginning balance – January 1
|
|
$649
|
|
|
|
$710
|
|
Reductions for payments made
|
(16
|
)
|
|
(37
|
)
|
Changes in estimates
|
16
|
|
|
25
|
|
Ending balance – June 30
|
|
$649
|
|
|
|
$698
|
|
The liabilities recorded represent our best estimate or the low end of a range of reasonably possible costs expected to be incurred to remediate sites, including operation and maintenance over periods of up to 30 years. It is reasonably possible that we may incur charges that exceed these recorded amounts because of regulatory agency orders and directives, changes in laws and/or regulations, higher than expected costs and/or the discovery of new or additional contamination. As part of our estimating process, we develop a range of reasonably possible alternate scenarios which include the high end of a range of reasonably possible cost estimates for all remediation sites for which we have sufficient information based on our experience and existing laws and regulations. There are some potential remediation obligations where the costs of remediation cannot be reasonably estimated. At
June 30, 2014
and
December 31, 2013
, the high end of the estimated range of reasonably possible remediation costs exceeded our recorded liabilities by
$895
and
$928
.
Product Warranties
The following table summarizes product warranty activity recorded during the
six months ended June 30, 2014
and
2013
.
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
Beginning balance – January 1
|
|
$1,570
|
|
|
|
$1,572
|
|
Additions for current year deliveries
|
314
|
|
|
231
|
|
Reductions for payments made
|
(209
|
)
|
|
(243
|
)
|
Changes in estimates
|
45
|
|
|
(50
|
)
|
Ending balance - June 30
|
|
$1,720
|
|
|
|
$1,510
|
|
Commercial Aircraft Commitments
In conjunction with signing definitive agreements for the sale of new aircraft (Sale Aircraft), we have entered into trade-in commitments with certain customers that give them the right to trade in used aircraft at a specified price upon the purchase of Sale Aircraft. The probability that trade-in commitments will be exercised is determined by using both quantitative information from valuation sources and qualitative information from other sources. The probability of exercise is assessed quarterly, or as events trigger a change, and takes into consideration the current economic and airline industry environments. Trade-in commitments, which can be terminated by mutual consent with the customer, may be exercised only during the period specified in the agreement, and require advance notice by the customer.
Trade-in commitment agreements at
June 30, 2014
have expiration dates from
2014
through
2023
. At
June 30, 2014
, and
December 31, 2013
total contractual trade-in commitments were
$1,953
and
$1,605
. As of
June 30, 2014
and
December 31, 2013
, we estimated that it was probable we would be obligated to perform on certain of these commitments with net amounts payable to customers totaling
$503
and
$325
and the fair value of the related trade-in aircraft was
$503
and
$325
.
Financing Commitments
Financing commitments related to aircraft on order, including options and those proposed in sales campaigns, totaled
$17,924
and
$17,987
as of
June 30, 2014
and
December 31, 2013
. The estimated earliest potential funding dates for these commitments as of
June 30, 2014
are as follows:
|
|
|
|
|
|
Total
|
|
July through December 2014
|
|
$1,520
|
|
2015
|
3,266
|
|
2016
|
3,695
|
|
2017
|
3,354
|
|
2018
|
1,798
|
|
Thereafter
|
4,291
|
|
|
|
$17,924
|
|
As of
June 30, 2014
, all of these financing commitments related to customers we believe have less than investment-grade credit. We have concluded that no reserve for future potential losses is required for these financing commitments based upon the terms, such as collateralization and interest rates, under which funding would be provided.
Standby Letters of Credit and Surety Bonds
We have entered into standby letters of credit and surety bonds with financial institutions primarily relating to the guarantee of our future performance on certain contracts. Contingent liabilities on outstanding letters of credit agreements and surety bonds aggregated approximately
$4,095
and
$4,376
as of
June 30, 2014
and
December 31, 2013
.
Commitments to ULA
We and Lockheed Martin Corporation have each committed to provide ULA with up to
$527
of additional capital contributions in the event ULA does not have sufficient funds to make a required payment to us under an inventory supply agreement. See Note
5
.
C-17
In September 2013, we decided to end production of C-17 aircraft in late 2015. In April 2014, we announced that we anticipate ending production approximately three months earlier based on our decision to produce three fewer aircraft in 2015 than previously planned. As a result, during the first quarter of 2014,
BDS
recorded
$48
to write off inventory and accrue termination liabilities to suppliers. At
June 30, 2014
, our backlog included
2
international orders for C-17 aircraft that are scheduled for delivery through mid-2014 and we have active sales campaigns for the remaining
10
unsold aircraft that we plan to produce. We are currently incurring costs and have made commitments to suppliers related to the unsold aircraft. We believe it is probable that we will recover costs related to the unsold aircraft from international customer orders. Should orders for the
10
unsold aircraft not materialize or should we decide to discontinue production of unsold aircraft, we could incur further charges to write-down inventory and/or record termination liabilities. At
June 30, 2014
, we had approximately
$938
of capitalized precontract costs and
$602
of potential termination liabilities to suppliers associated with the unsold aircraft.
F/A-18
At
June 30, 2014
, our backlog included
89
F/A-18 aircraft currently under contract with the U.S. Navy. The President’s Fiscal Year 2015 budget request submitted in March 2014 did not include funding for additional F/A-18 aircraft. We are continuing to work with our U.S. customer as well as international customers to secure additional orders. The orders in backlog would complete production in 2016. Should additional orders not materialize, it is reasonably possible that we will decide in the next twelve months to end production of the F/A-18 at a future date. We are still evaluating the full financial impact of a potential production shutdown, including any recovery that may be available from the U.S. government.
United States Government Defense Environment Overview
U.S. government appropriation levels remain subject to significant uncertainty. In August 2011, the Budget Control Act (The Act) established limits on U.S. government discretionary spending, including a reduction of defense spending by approximately $490 billion between the 2012 and 2021 U.S. government fiscal years. The Act also provided that the defense budget would face “sequestration” cuts of up to an additional $500 billion during that same period to the extent that discretionary spending limits are exceeded. The impact of sequestration cuts was reduced with respect to FY2014 and FY2015 following the enactment of The Bipartisan Budget Act in December 2013. However, significant uncertainty remains with respect to overall levels of defense spending and it is likely that U.S. government discretionary spending levels for FY2016 and beyond will continue to be subject to significant pressure, including risk of future sequestration cuts.
Significant uncertainty also continues with respect to program-level appropriations for the U.S. Department of Defense (
U.S. DoD
) and other government agencies, including the National Aeronautics and Space Administration, within the overall budgetary framework described above. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions associated with the authorization and appropriations process could result in reductions, cancellations and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the results of the Company's operations, financial position and/or cash flows.
In addition to the risks described above, if Congress is unable to pass appropriations bills in a timely manner, a government shutdown could result which could have impacts above and beyond those resulting from budget cuts or sequestration impacts. For example, requirements to furlough employees in the
U.S. DoD
or other government agencies could result in payment delays, impair our ability to perform work on existing contracts, and/or negatively impact future orders.
KC-46A Tanker and BDS Fixed-Price Development Contracts
Fixed-price development work is inherently uncertain and subject to significant variability in estimates of the cost and time required to complete the work. BDS fixed-price contracts with significant development work include
Airborne Early Warning and Control
, India P-8I, Saudi Arabia F-15, USAF KC-46A Tanker and commercial and military satellites. The operational and technical complexities of these contracts create financial risk, which could trigger termination provisions, order cancellations or other financially significant exposure. Changes to cost and revenue estimates could result in lower margins or material charges for reach-forward losses. For example, during the three months ended June 30, 2014, higher estimated costs to complete the KC-46A Tanker contract for the U.S. Air Force resulted in a reach-forward loss of
$425
of which the Commercial Airplanes segment recorded
$238
and the BMA segment recorded
$187
.
Recoverable Costs on Government Contracts
Our final incurred costs for each year are subject to audit and review for allowability by the U.S. government, which can result in payment demands related to costs they believe should be disallowed. We work with the U.S government to assess the merits of claims and where appropriate reserve for amounts disputed. If we are unable to satisfactorily resolve disputed costs, we could be required to record an earnings charge and/or provide refunds to the U.S. government.
Russia/Ukraine
We continue to monitor recent political unrest involving Russia and Ukraine, where we and some of our suppliers source titanium products and/or have operations. A number of our commercial customers also have operations in Russia and Ukraine. To date, we have not experienced any disruptions to production or deliveries. Should suppliers or customers experience disruption, our production and/or deliveries could be materially impacted.
747 and 787 Commercial Airplane Programs
The development and initial production of new commercial airplanes and new commercial airplane derivatives, which include the 747 and 787, entail significant commitments to customers and suppliers as well as substantial investments in working capital, infrastructure and research and development. The 747 and 787 programs had gross margins that were breakeven or near breakeven during the
six months ended June 30, 2014
.
Continued weakness in the air cargo market and lower-than-expected demand for large commercial passenger aircraft have resulted in ongoing pricing pressures and fewer 747 orders than anticipated. We continue to have a number of unsold 747 production positions. If market and production risks cannot be mitigated, the program could face a reach-forward loss that may be material.
The combination of production challenges, change incorporation, schedule delays and customer and supplier impacts has created significant pressure on 787 program profitability. If risks related to this program, including risks associated with planned production rate increases or introducing and manufacturing derivatives as scheduled cannot be mitigated, the program could face additional customer claims and/or supplier assertions, as well as a reach-forward loss that may be material.
Note
10
– Arrangements with Off-Balance Sheet Risk
We enter into arrangements with off-balance sheet risk in the normal course of business, primarily in the form of guarantees.
The following table provides quantitative data regarding our third party guarantees. The maximum potential payments represent a “worst-case scenario,” and do not necessarily reflect amounts that we expect to pay. Estimated proceeds from collateral and recourse represent the anticipated values of assets we could liquidate or receive from other parties to offset our payments under guarantees. The carrying amount of liabilities represents the amount included in Accrued liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
Potential Payments
|
|
Estimated Proceeds from
Collateral/Recourse
|
|
Carrying Amount of
Liabilities
|
|
June 30
2014
|
|
December 31
2013
|
|
|
June 30
2014
|
|
December 31
2013
|
|
|
June 30
2014
|
|
December 31
2013
|
|
Contingent repurchase commitments
|
|
$1,652
|
|
|
$1,872
|
|
|
|
$1,643
|
|
|
$1,871
|
|
|
|
$5
|
|
|
$5
|
|
Indemnifications to ULA:
|
|
|
|
|
|
|
|
|
Contributed Delta program launch inventory
|
123
|
|
127
|
|
|
|
|
|
|
|
Contract pricing
|
261
|
|
261
|
|
|
|
|
|
7
|
|
7
|
|
Other Delta contracts
|
221
|
|
227
|
|
|
|
|
|
8
|
|
8
|
|
Other indemnifications
|
92
|
|
106
|
|
|
|
|
|
28
|
|
28
|
|
Credit guarantees
|
30
|
|
35
|
|
|
27
|
|
27
|
|
|
2
|
|
2
|
|
Contingent Repurchase Commitments
The repurchase price specified in contingent repurchase commitments is generally lower than the expected fair value at the specified repurchase date. Estimated proceeds from collateral/recourse in the table above represent the lower of the contracted repurchase price or the expected fair value of each aircraft at the specified repurchase date.
Indemnifications to ULA
In 2006, we agreed to indemnify ULA through December 31, 2020 against potential non-recoverability and non-allowability of
$1,360
of Boeing Delta launch program inventory included in contributed assets plus
$1,860
of inventory subject to an inventory supply agreement which ends on March 31, 2021. Since inception, ULA has consumed
$1,237
of the
$1,360
of inventory that was contributed by us and has yet to consume
$123
. ULA has made advance payments of
$1,500
to us and we have recorded revenues and cost of sales of
$1,170
under the inventory supply agreement through
June 30, 2014
.
We agreed to indemnify ULA against potential losses that ULA may incur in the event ULA is unable to obtain certain additional contract pricing from the U.S. Air Force (USAF) for
four
satellite missions. We believe ULA is entitled to additional contract pricing. In December 2008, ULA submitted a claim to the USAF to re-price the contract value for two satellite missions. In March 2009, the USAF issued a denial of that claim. In June 2009, ULA filed a notice of appeal, and in October 2009, ULA filed a complaint before the Armed Services Board of Contract Appeals (ASBCA) for a contract adjustment for the price of the two satellite missions. In September 2009, the USAF exercised its option for a third satellite mission. During the third quarter of 2010, ULA submitted a claim to the USAF to re-price the contract value of the third mission. The USAF did not exercise an option for a fourth mission prior to the expiration of the contract. In March 2011, ULA filed a notice of appeal before the ASBCA, seeking to re-price the third mission. On November 20, 2013, the ASBCA denied USAF motions for summary judgment against
ULA
in large part, leaving
ULA
's claims against the USAF substantially intact. The hearing before the ASBCA concluded on December 20, 2013. The parties filed their final post-hearing briefs in May 2014. The Board may now issue a ruling at any time, but there is no scheduled date or official deadline for its decision. If ULA is ultimately unsuccessful in obtaining additional pricing, we may be responsible for a portion of the shortfall and may record up to
$278
in pre-tax losses associated with the
three
missions, representing up to
$261
for the indemnification payment and up to
$17
for our portion of additional contract losses incurred by
ULA
.
Potential payments for Other Delta contracts include
$85
related to deferred support costs. In June 2011, the Defense Contract Management Agency (DCMA) notified ULA that it had determined that
$271
of deferred support costs are not recoverable under government contracts. In December 2011, the DCMA notified ULA of the potential non-recoverability of an additional
$114
of deferred production costs. The DCMA has not yet issued a final decision related to the recoverability of the
$114
.
ULA
and Boeing believe that all costs are recoverable and in November 2011, ULA filed a certified claim with the USAF for collection of deferred support and production costs. The USAF issued a final decision denying
ULA
’s certified claim in May 2012. On June 14, 2012, Boeing and ULA filed a suit in the Court of Federal Claims seeking recovery of the deferred support and production costs from the U.S. government. On November 9, 2012, the U.S. government filed an answer to our claim and asserted a counterclaim for credits that it alleges were offset by deferred support cost invoices. We believe that the U.S. government’s counterclaim is without merit, and have filed an answer challenging it on multiple grounds. The litigation is in the discovery phase, and the Court has not yet set a trial date. If, contrary to our belief, it is determined that some or all of the deferred support or production costs are not recoverable, we could be required to record pre-tax losses and make indemnification payments to ULA for up to
$317
of the costs questioned by the DCMA.
Other Indemnifications
As part of the 2004 sale agreement with General Electric Capital Corporation related to the sale of
BCC
's Commercial Financial Services business, BCC is involved in a loss sharing arrangement for losses on transferred portfolio assets, such as asset sales, provisions for loss or asset impairment charges offset by gains from asset sales. At
June 30, 2014
and
December 31, 2013
, our maximum future cash exposure to losses associated with the loss sharing arrangement was
$92
and
$106
and our accrued liability under the loss sharing arrangement was
$28
.
In conjunction with our sales of Electron Dynamic Devices, Inc. and Rocketdyne Propulsion and Power businesses and our Commercial Airplanes facilities in Wichita, Kansas and Tulsa and McAlester, Oklahoma, we agreed to indemnify, for an indefinite period, the buyers for costs relating to pre-closing environmental conditions and certain other items. It is impossible to assess the potential number of future claims that may be asserted under these indemnifications, nor the amounts thereof (if any). As a result, we cannot estimate the maximum potential amount of future payments under these indemnities and therefore, no liability has been recorded. To the extent that claims have been made under these indemnities and/or are probable and reasonably estimable, liabilities associated with these indemnities are included in the environmental liability disclosure in Note
9
.
Credit Guarantees
We have issued credit guarantees, principally to facilitate the sale and/or financing of commercial aircraft. Under these arrangements, we are obligated to make payments to a guaranteed party in the event that lease or loan payments are not made by the original lessee or debtor or certain specified services are not performed. A substantial portion of these guarantees has been extended on behalf of original lessees or debtors with less than investment-grade credit. Our commercial aircraft credit guarantees are collateralized by the underlying commercial aircraft and certain other assets. Current outstanding credit guarantees expire within the next
seven
years.
Note
11
– Postretirement Plans
The components of net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
|
Three months ended June 30
|
Pension Plans
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Service cost
|
|
$829
|
|
|
|
$946
|
|
|
|
$415
|
|
|
|
$473
|
|
Interest cost
|
1,542
|
|
|
1,462
|
|
|
758
|
|
|
731
|
|
Expected return on plan assets
|
(2,083
|
)
|
|
(1,938
|
)
|
|
(1,042
|
)
|
|
(969
|
)
|
Amortization of prior service costs
|
89
|
|
|
98
|
|
|
44
|
|
|
49
|
|
Recognized net actuarial loss
|
514
|
|
|
1,138
|
|
|
253
|
|
|
569
|
|
Settlement/curtailment/other losses
|
337
|
|
|
20
|
|
|
(1
|
)
|
|
|
|
Net periodic benefit cost
|
|
$1,228
|
|
|
|
$1,726
|
|
|
|
$427
|
|
|
|
$853
|
|
Net periodic benefit cost included in Earnings from operations
|
|
$1,728
|
|
|
|
$1,544
|
|
|
|
$693
|
|
|
|
$753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
|
Three months ended June 30
|
Other Postretirement Benefit Plans
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Service cost
|
|
$64
|
|
|
|
$74
|
|
|
|
$32
|
|
|
|
$37
|
|
Interest cost
|
144
|
|
|
133
|
|
|
72
|
|
|
66
|
|
Expected return on plan assets
|
(4
|
)
|
|
(4
|
)
|
|
(2
|
)
|
|
(2
|
)
|
Amortization of prior service costs
|
(72
|
)
|
|
(90
|
)
|
|
(36
|
)
|
|
(45
|
)
|
Recognized net actuarial loss
|
4
|
|
|
48
|
|
|
2
|
|
|
24
|
|
Net periodic benefit cost
|
|
$136
|
|
|
|
$161
|
|
|
|
$68
|
|
|
|
$80
|
|
Net periodic benefit cost included in Earnings from operations
|
|
$143
|
|
|
|
$179
|
|
|
|
$72
|
|
|
|
$88
|
|
In the first quarter of 2014, we announced changes to our nonunion and certain union retirement plans whereby approximately
100,000
employees will transition in 2016 to a company-funded defined contribution retirement savings plan in lieu of participation in defined benefit pension plans. The defined benefit pension plan changes resulted in charges of
$334
in the first quarter of 2014, primarily for pension curtailment costs. In addition, we remeasured pension assets and benefit obligations for the affected pension plans. These remeasurements resulted in a net actuarial gain of
$966
which is included in Other Comprehensive Income. The
$966
reflects a gain of
$1,988
resulting from benefit plan changes that was partially offset by net actuarial losses of
$1,022
primarily driven by a reduction in the discount rate from approximately
4.8%
at December 31, 2013 to approximately
4.5%
as of the remeasurement dates.
Note
12
– Share-Based Compensation and Other Compensation Arrangements
Restricted Stock Units
On
February 24, 2014
, we granted to our executives
695,651
restricted stock units
(
RSU
s) as part of our long-term incentive program with a grant date fair value of
$129.58
per share. The
RSU
s granted under this program will vest and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date.
Performance-Based Restricted Stock Units
On
February 24, 2014
, we granted to our executives
662,215
performance-based restricted stock units
(
PBRSU
s) as part of our long-term incentive program with a grant date fair value of
$136.12
per share. The
PBRSU
s granted under this program will vest and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date based on the Company’s total shareholder return as compared to a group of peer companies. The award payout can range from
0%
to
200%
of the original
PBRSU
award amount. Compensation expense for the award is recognized over the
three
-year performance period based upon the fair value determined at grant date using a Monte-Carlo simulation model.
Performance Awards
On
February 24, 2014
, we granted performance awards to our executives with the payout based on the achievement of financial goals for the
three
-year period ending
December 31, 2016
. At
June 30, 2014
, the minimum payout amount is
$0
and the maximum amount we could be required to pay out is
$349
.
Note
13
– Shareholders' Equity
Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive income/(loss) (AOCI) by component for the
six and three months ended June 30, 2014
and
2013
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation Adjustments
|
|
|
Unrealized Gains and Losses on Certain Investments
|
|
|
Unrealized Gains and Losses on Derivative Instruments
|
|
|
Defined Benefit Pension Plans & Other Postretirement Benefits
|
|
|
Total
(1)
|
|
Balance at January 1, 2013
|
|
$214
|
|
|
|
($8
|
)
|
|
|
$86
|
|
|
|
($17,708
|
)
|
|
|
($17,416
|
)
|
Other comprehensive income/(loss) before reclassifications
|
(88
|
)
|
|
|
|
(89
|
)
|
|
33
|
|
|
(144
|
)
|
Amounts reclassified from AOCI
|
|
|
|
|
(3
|
)
|
|
769
|
|
(2)
|
766
|
|
Net current period Other comprehensive income/(loss)
|
(88
|
)
|
|
|
|
(92
|
)
|
|
802
|
|
|
622
|
|
Balance at June 30, 2013
|
|
$126
|
|
|
|
($8
|
)
|
|
|
($6
|
)
|
|
|
($16,906
|
)
|
|
|
($16,794
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014
|
|
$150
|
|
|
|
($8
|
)
|
|
|
($6
|
)
|
|
|
($10,030
|
)
|
|
|
($9,894
|
)
|
Other comprehensive income/(loss) before reclassifications
|
38
|
|
|
3
|
|
|
25
|
|
|
622
|
|
|
688
|
|
Amounts reclassified from AOCI
|
|
|
|
|
1
|
|
|
546
|
|
(2)
|
547
|
|
Net current period Other comprehensive income/(loss)
|
38
|
|
|
3
|
|
|
26
|
|
|
1,168
|
|
|
1,235
|
|
Balance at June 30, 2014
|
|
$188
|
|
|
|
($5
|
)
|
|
|
$20
|
|
|
|
($8,862
|
)
|
|
|
($8,659
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2013
|
|
$191
|
|
|
|
($8
|
)
|
|
|
$62
|
|
|
|
($17,286
|
)
|
|
|
($17,041
|
)
|
Other comprehensive income/(loss) before reclassifications
|
(65
|
)
|
|
|
|
(63
|
)
|
|
1
|
|
|
(127
|
)
|
Amounts reclassified from AOCI
|
|
|
|
|
(5
|
)
|
|
379
|
|
(2)
|
374
|
|
Net current period Other comprehensive income/(loss)
|
(65
|
)
|
|
|
|
(68
|
)
|
|
380
|
|
|
247
|
|
Balance at June 30, 2013
|
|
$126
|
|
|
|
($8
|
)
|
|
|
($6
|
)
|
|
|
($16,906
|
)
|
|
|
($16,794
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2014
|
|
$167
|
|
|
|
($6
|
)
|
|
|
($12
|
)
|
|
|
($9,032
|
)
|
|
|
($8,883
|
)
|
Other comprehensive income/(loss) before reclassifications
|
21
|
|
|
1
|
|
|
36
|
|
|
2
|
|
|
60
|
|
Amounts reclassified from AOCI
|
|
|
|
|
(4
|
)
|
|
168
|
|
(2)
|
164
|
|
Net current period Other comprehensive income/(loss)
|
21
|
|
|
1
|
|
|
32
|
|
|
170
|
|
|
224
|
|
Balance at June 30, 2014
|
|
$188
|
|
|
|
($5
|
)
|
|
|
$20
|
|
|
|
($8,862
|
)
|
|
|
($8,659
|
)
|
(1)
Net of tax.
|
|
(2)
|
Primarily relates to amortization of actuarial gains/losses for the
six and three months ended June 30, 2013
totaling
$755
and
$377
(net of tax of
$(431)
and
$(216)
) and to settlements, curtailments and amortization of actuarial gains/losses for the
six and three months ended June 30, 2014
totaling
$535
and
$163
(
net of tax of
($298)
and
$(91)
). These are included in the net periodic pension cost of which a portion is allocated to production as inventoried costs.
|
Note
14
– Derivative Financial Instruments
Cash Flow Hedges
Our cash flow hedges include foreign currency forward contracts, foreign currency option contracts, commodity swaps, and commodity purchase contracts. We use foreign currency forward and option contracts to manage currency risk associated with certain transactions, specifically forecasted sales and purchases made in foreign currencies. Our foreign currency contracts hedge forecasted transactions principally occurring within five years in the future, with certain contracts hedging transactions through
2023
. We use commodity derivatives, such as swaps and fixed-price purchase commitments to hedge against potentially unfavorable price changes for items used in production. Our commodity contracts hedge forecasted transactions through
2017
.
Fair Value Hedges
Interest rate swaps under which we agree to pay variable rates of interest are designated as fair value hedges of fixed-rate debt. The net change in fair value of the derivatives and the hedged items is reported in Boeing Capital interest expense.
Derivative Instruments Not Receiving Hedge Accounting Treatment
We also hold certain derivative instruments, primarily foreign currency forward contracts, for risk management purposes that are not receiving hedge accounting treatment.
Notional Amounts and Fair Values
The notional amounts and fair values of derivative instruments in the Condensed Consolidated Statements of Financial Position were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amounts
(1)
|
Other assets
|
Accrued liabilities
|
|
June 30
2014
|
|
December 31
2013
|
|
June 30
2014
|
|
December 31
2013
|
|
June 30
2014
|
|
December 31
2013
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$2,620
|
|
|
$2,524
|
|
|
$113
|
|
|
$122
|
|
|
($45
|
)
|
|
($64
|
)
|
Interest rate contracts
|
313
|
|
313
|
|
12
|
|
13
|
|
|
|
|
Commodity contracts
|
63
|
|
72
|
|
5
|
|
2
|
|
(24
|
)
|
(39
|
)
|
Derivatives not receiving hedge accounting treatment:
|
|
|
|
|
|
|
Foreign exchange contracts
|
400
|
|
259
|
|
28
|
|
12
|
|
(26
|
)
|
(35
|
)
|
Commodity contracts
|
6
|
|
9
|
|
|
|
|
|
(2
|
)
|
(4
|
)
|
Total derivatives
|
|
$3,402
|
|
|
$3,177
|
|
158
|
|
149
|
|
(97
|
)
|
(142
|
)
|
Netting arrangements
|
|
|
(44
|
)
|
(63
|
)
|
44
|
|
63
|
|
Net recorded balance
|
|
|
|
$114
|
|
|
$86
|
|
|
($53
|
)
|
|
($79
|
)
|
|
|
(1)
|
Notional amounts represent the gross contract/notional amount of the derivatives outstanding.
|
Gains/(losses) associated with our cash flow and undesignated hedging transactions and their effect on Other comprehensive income/(loss) and Net earnings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
|
Three months ended June 30
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Effective portion recognized in Other comprehensive income/(loss), net of taxes:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$20
|
|
|
|
($87
|
)
|
|
|
$32
|
|
|
|
($61
|
)
|
Commodity contracts
|
5
|
|
|
(2
|
)
|
|
4
|
|
|
(2
|
)
|
Effective portion reclassified out of Accumulated other comprehensive loss into earnings, net of taxes:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
7
|
|
|
14
|
|
|
9
|
|
|
11
|
|
Commodity contracts
|
(8
|
)
|
|
(11
|
)
|
|
(5
|
)
|
|
(6
|
)
|
Forward points recognized in Other income, net:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
16
|
|
|
22
|
|
|
9
|
|
|
14
|
|
Undesignated derivatives recognized in Other income, net:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
(6
|
)
|
|
14
|
|
|
(2
|
)
|
|
15
|
|
Based on our portfolio of cash flow hedges, we expect to reclassify gains of
$4
(pre-tax) out of Accumulated other comprehensive loss into earnings during the next 12 months. Ineffectiveness related to our hedges recognized in Other income was insignificant for the
six and three months ended June 30, 2014
and
2013
.
We have derivative instruments with credit-risk-related contingent features. For foreign exchange contracts with original maturities of at least five years, our derivative counterparties could require settlement if we default on our five-year credit facility. For commodity contracts, our counterparties could require collateral posted in an amount determined by our credit ratings. The fair value of foreign exchange and commodity contracts that have credit-risk-related contingent features that are in a net liability position at
June 30, 2014
was
$6
. At
June 30, 2014
, there was no collateral posted related to our derivatives.
Note
15
– Fair Value Measurements
The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
December 31, 2013
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$2,676
|
|
|
|
$2,676
|
|
|
|
|
|
|
|
$3,783
|
|
|
|
$3,783
|
|
|
|
|
|
Available-for-sale investments
|
12
|
|
|
12
|
|
|
|
|
|
|
8
|
|
|
6
|
|
|
|
|
|
$2
|
|
Derivatives
|
114
|
|
|
|
|
|
$114
|
|
|
|
|
86
|
|
|
|
|
|
$86
|
|
|
|
Total assets
|
|
$2,802
|
|
|
|
$2,688
|
|
|
|
$114
|
|
|
|
|
|
$3,877
|
|
|
|
$3,789
|
|
|
|
$86
|
|
|
|
$2
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
($53
|
)
|
|
|
|
|
($53
|
)
|
|
|
|
|
($79
|
)
|
|
|
|
|
($79
|
)
|
|
|
Total liabilities
|
|
($53
|
)
|
|
|
|
|
($53
|
)
|
|
|
|
|
($79
|
)
|
|
|
|
|
($79
|
)
|
|
|
Money market funds and available-for-sale equity securities are valued using a market approach based on the quoted market prices of identical instruments. Available-for-sale debt investments are primarily valued using an income approach based on benchmark yields, reported trades and broker/dealer quotes.
Derivatives include foreign currency, commodity and interest rate contracts. Our foreign currency forward contracts are valued using an income approach based on the present value of the forward rate less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the present value of the commodity index prices less the contract rate multiplied by the notional amount. The fair value of our interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve.
Certain assets have been measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). The following table presents the nonrecurring losses recognized for the
six months ended June 30
and the fair value and asset classification of the related assets as of the impairment date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
Fair
Value
|
|
|
Total
Losses
|
|
|
Fair
Value
|
|
|
Total
Losses
|
|
Operating lease equipment
|
|
$27
|
|
|
|
($6
|
)
|
|
|
$28
|
|
|
|
($21
|
)
|
Property, plant and equipment
|
2
|
|
|
(10
|
)
|
|
6
|
|
|
(5
|
)
|
Total
|
|
$29
|
|
|
|
($16
|
)
|
|
|
$34
|
|
|
|
($26
|
)
|
The fair value of the impaired operating lease equipment is derived by calculating a median collateral value from a consistent group of third party aircraft value publications. The values provided by the third party aircraft publications are derived from their knowledge of market trades and other market factors. Management reviews the publications quarterly to assess the continued appropriateness and consistency with market trends. Under certain circumstances, we adjust values based on the attributes and condition of the specific aircraft or equipment, usually when the features or use of the aircraft vary significantly from the more generic aircraft attributes covered by third party publications, or on the expected net sales price for the aircraft. Property, plant and equipment was primarily valued using an income approach based on the discounted cash flows associated with the underlying assets.
For Level 3 assets that were measured at fair value on a nonrecurring basis during the
six months ended June 30, 2014
, the following table presents the fair value of those assets as of the measurement date, valuation techniques and related unobservable inputs of those assets.
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
Valuation
Technique(s)
|
|
Unobservable Input
|
|
Range
Median or Average
|
Operating lease equipment
|
$27
|
|
Market approach
|
|
Aircraft value publications
|
|
$17 - $42
(1)
Median $32
|
|
|
Aircraft condition adjustments
|
|
($5)- $0
(2)
Net ($5)
|
|
|
(1)
|
The range represents the sum of the highest and lowest values for all aircraft subject to fair value measurement, according to the third party aircraft valuation publications that we use in our valuation process.
|
|
|
(2)
|
The negative amount represents the sum for all aircraft subject to fair value measurement, of all downward adjustments based on consideration of individual aircraft attributes and condition. The positive amount represents the sum of all such upward adjustments.
|
Fair Value Disclosures
The fair values and related carrying values of financial instruments that are not required to be remeasured at fair value on the Condensed Consolidated Statements of Financial Position were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
Carrying
Amount
|
|
Total Fair
Value
|
|
Level 1
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
Accounts receivable, net
|
|
$7,694
|
|
|
$7,744
|
|
|
|
$7,744
|
|
|
Notes receivable, net
|
446
|
|
480
|
|
|
480
|
|
|
Liabilities
|
|
|
|
|
|
Debt, excluding capital lease obligations
|
(8,727
|
)
|
(10,415
|
)
|
|
(10,204
|
)
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
Carrying
Amount
|
|
Total Fair
Value
|
|
Level 1
|
Level 2
|
Level 3
|
Assets
|
|
|
|
|
|
Accounts receivable, net
|
|
$6,546
|
|
|
$6,525
|
|
|
|
$6,525
|
|
|
Notes receivable, net
|
572
|
|
622
|
|
|
622
|
|
|
Liabilities
|
|
|
|
|
|
Debt, excluding capital lease obligations
|
(9,483
|
)
|
(10,897
|
)
|
|
(10,897
|
)
|
|
The fair value of Accounts receivable is based on current market rates for loans of the same risk and maturities. The fair values of our variable rate notes receivable that reprice frequently approximate their carrying amounts. The fair values of fixed rate notes receivable are estimated with discounted cash flow analysis using interest rates currently offered on loans with similar terms to borrowers of similar credit quality. The fair value of our debt that is traded in the secondary market is classified as Level 2 and is based on current market yields. For our debt that is not traded in the secondary market, the fair value is classified as Level 2 and is based on our indicative borrowing cost derived from dealer quotes or discounted cash flows. The fair values of our debt classified as Level 3 are based on discounted cash flow models using the implied yield from similar securities. With regard to other financial instruments with off-balance sheet risk, it is not practicable to estimate the fair value of our indemnifications and financing commitments because the amount and timing of those arrangements are uncertain. Items not included in the above disclosures include cash, restricted cash, time deposits and other deposits, commercial paper, money market funds, Accounts payable and long-term payables. The carrying values of those items, as reflected in the Condensed Consolidated Statements of Financial Position, approximate their fair value at
June 30, 2014
and
December 31, 2013
. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash (Level 1).
Note
16
– Legal Proceedings
Various legal proceedings, claims and investigations related to products, contracts, employment and other matters are pending against us. Potentially material contingencies are discussed below.
We are subject to various U.S. government investigations, from which civil, criminal or administrative proceedings could result or have resulted in the past. Such proceedings involve or could involve claims by the government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. We believe, based upon current information, that the outcome of any such government disputes and investigations will not have a material effect on our financial position, results of operations, or cash flows, except as set forth below. Where it is reasonably possible that we will incur losses in excess of
recorded amounts in connection with any of the matters set forth below, we will disclose either the amount or range of reasonably possible losses in excess of such amounts or, where no such amount or range can be reasonably estimated, the reasons why no such estimate can be made.
Employment, Labor and Benefits Litigation
In connection with the 2005 sale of the former Wichita facility to Spirit AeroSystems, Inc. (Spirit), on February 16, 2007, an action entitled Harkness et al. v. The Boeing Company et al. was filed in the U.S. District Court for the District of Kansas, alleging collective bargaining agreement breaches and
ERISA
violations in connection with alleged failures to provide benefits to certain former employees of the Wichita facility. The plaintiffs and Boeing agreed on June 12, 2014 to a settlement of the matter, subject to a fairness hearing. The settlement would apply to approximately
2,000
employees who were subsequently employed by Spirit. Spirit is obligated to indemnify Boeing for settlement of this matter and we intend to pursue full indemnification from Spirit. We cannot reasonably estimate the range of loss, if any, that may result from this matter pending the outcome of the fairness hearing.
On October 13, 2006, we were named as a defendant in a lawsuit filed in the U.S. District Court for the Southern District of Illinois. Plaintiffs, seeking to represent a class of similarly situated
participants and beneficiaries in The Boeing Company Voluntary Investment Plan (the VIP), alleged that fees and expenses incurred by the VIP were and are unreasonable and excessive, not incurred solely for the benefit of the VIP and its participants, and were undisclosed to participants. The plaintiffs further alleged that defendants breached their fiduciary duties in violation of §502(a)(2) of
ERISA
, and sought injunctive and equitable relief pursuant to §502(a)(3) of
ERISA
. Summary judgment briefs were filed in the district court on January 6, 2014, and plaintiffs’ opposition briefs were filed on February 10, 2014. On June 10, 2014, the district court set August 4, 2014 as the date for oral argument on the summary judgment motions, September 22, 2014 as the date for the Final Pretrial Conference and a Presumptive Trial Date of October 2014. We cannot reasonably estimate the range of loss, if any, that may result from this matter given the current procedural status of the litigation.
Note
17
– Segment Information
Effective during the first quarter of 2014, certain programs were realigned among
BDS
segments. The BMA aircraft programs
Airborne Warning and Control Systems
and
Airborne Early Warning and Control
and the F-22 Modernization program were realigned from
BMA
to
GS&S
. Business segment data for 2013 have been adjusted to reflect the realignment.
Our primary profitability measurements to review a segment’s operating results are Earnings from operations and operating margins. See page
6
for a Summary of Business Segment Data, which is an integral part of this note.
Intersegment revenues, eliminated in Unallocated items and eliminations, are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
|
Three months ended June 30
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Commercial Airplanes
|
|
$552
|
|
|
|
$563
|
|
|
|
$278
|
|
|
|
$368
|
|
Boeing Capital
|
11
|
|
|
17
|
|
|
4
|
|
|
8
|
|
Total
|
|
$563
|
|
|
|
$580
|
|
|
|
$282
|
|
|
|
$376
|
|
Unallocated Items and Eliminations
Unallocated items and eliminations includes costs not attributable to business segments as well as intercompany profit eliminations. We generally allocate costs to business segments based on the U.S. federal cost accounting standards. Components of Unallocated items and eliminations are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
|
|
Three months ended June 30
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Share-based plans
|
|
($44
|
)
|
|
|
($53
|
)
|
|
|
($20
|
)
|
|
|
($22
|
)
|
Deferred compensation
|
(19
|
)
|
|
(102
|
)
|
|
(26
|
)
|
|
(46
|
)
|
Amortization of previously capitalized interest
|
(36
|
)
|
|
(34
|
)
|
|
(18
|
)
|
|
(17
|
)
|
Eliminations and other
|
(194
|
)
|
|
(158
|
)
|
|
(62
|
)
|
|
(92
|
)
|
Sub-total
|
(293
|
)
|
|
(347
|
)
|
|
(126
|
)
|
|
(177
|
)
|
Pension
|
(804
|
)
|
|
(689
|
)
|
|
(228
|
)
|
|
(331
|
)
|
Postretirement
|
47
|
|
|
38
|
|
|
24
|
|
|
19
|
|
Pension and Postretirement
|
(757
|
)
|
|
(651
|
)
|
|
(204
|
)
|
|
(312
|
)
|
Total
|
|
($1,050
|
)
|
|
|
($998
|
)
|
|
|
($330
|
)
|
|
|
($489
|
)
|
Unallocated Pension and Other Postretirement Benefit Expense
Unallocated pension and other postretirement benefit expense represent the portion of pension and other postretirement benefit costs that are not recognized by business segments for segment reporting purposes. Pension costs, comprising
GAAP
service and prior service costs, are allocated to Commercial Airplanes. Pension costs are allocated to
BDS
using
U.S. Government Cost Accounting Standards
(
CAS
), which employ different actuarial assumptions and accounting conventions than
Generally Accepted Accounting Principles in the United States of America
(
GAAP
). These costs are allocable to government contracts. Other postretirement benefit costs are allocated to business segments based on
CAS
, which is generally based on benefits paid.
Assets
Segment assets are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
June 30
2014
|
|
|
December 31
2013
|
|
Commercial Airplanes
|
|
$54,086
|
|
|
|
$49,520
|
|
Defense, Space & Security:
|
|
|
|
Boeing Military Aircraft
|
6,907
|
|
|
5,872
|
|
Network & Space Systems
|
6,463
|
|
|
6,450
|
|
Global Services & Support
|
4,714
|
|
|
5,040
|
|
Total Defense, Space & Security
|
18,084
|
|
|
17,362
|
|
Boeing Capital
|
3,387
|
|
|
3,914
|
|
Other segment
|
1,207
|
|
|
1,208
|
|
Unallocated items and eliminations
|
15,973
|
|
|
20,659
|
|
Total
|
|
$92,737
|
|
|
|
$92,663
|
|
Assets included in Unallocated items and eliminations primarily consist of Cash and cash equivalents, Short-term and other investments, Deferred tax assets, capitalized interest and assets held by
SSG
as well as intercompany eliminations.